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Latvia experienced a boom-bust cycle prior to joining the euro area in 2014. Macro-prudential policies are in place to reduce the risk of instability in the financial sector. Closely monitoring the non-resident businesses is crucial.

Monetary policy has been very accommodative, and as inflationary pressures emerge, the policy rate should be gradually increased, followed by a reduction in the size of the Bank of England’s balance sheet.

The robust monetary policy framework kept inflation around the 3% target. The banking system is solid, but more competition could lower fees. The housing market, consumer debt and the expansion of Colombian banks abroad are potential risks.